Mutual Credit Guarantee Scheme for MSMEs Launched

January 30, 2025

The Government of India has recently approved the Mutual Credit Guarantee Scheme for Micro, Small and Medium Enterprises (MSMEs). This initiative aims to enhance credit access for manufacturing units by providing a 60% guarantee coverage on loans up to ₹100 crore. This scheme is designed to support MSMEs in purchasing essential equipment and machinery for their operations.

Scheme Overview

The Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) offers opportunity for eligible MSMEs to secure loans.
Borrowers must have a valid Udyam Registration Number.
The maximum loan amount guaranteed is ₹100 crore, although project costs may exceed this amount.
The scheme is particularly focused on facilitating the purchase of equipment or machinery, which constitutes at least 75% of the project cost.

Loan Terms and Conditions

For loans up to ₹50 crore, the repayment period can extend up to eight years, including a two-year moratorium on principal repayments.
Loans exceeding ₹50 crore are subject to a higher repayment schedule and may allow for an extended moratorium period.
An initial contribution of 5% of the loan amount is required at the time of application for the guarantee cover.

Guarantee Fees Structure

During the year of sanction, there is no annual guarantee fee for loans under the scheme.
For the subsequent three years, the fee is set at 1.5% per annum of the outstanding loan amount as of March 31 of the previous year.
After this period, the fee reduces to 1% per annum. This structure aims to encourage MSMEs to utilise the scheme without the burden of high initial costs.

Economic Impact

The manufacturing sector currently contributes 17% to India’s GDP and employs over 27.3 million workers.
The government, under the ‘Make in India‘ initiative, aims to increase this contribution to 25% of GDP.
The MCGS-MSME is expected to facilitate greater credit availability, thereby encouraging growth in the manufacturing sector and supporting the overall economy.

Global Context

As global supply chains are realigning, India is positioning itself as a viable alternative for manufacturing. The country benefits from abundant raw materials, low labour costs, and a growing pool of skilled workers. The MCGS-MSME addresses the need for accessible credit, which is essential for MSMEs to expand their manufacturing capabilities and compete effectively in the global market.

Implementation Timeline

The scheme will be operational for four years from the date of issuance of operational guidelines or until a cumulative guarantee of ₹7 lakh crore is reached, whichever comes first. This ambitious target reflects the government’s commitment to enhancing the credit landscape for MSMEs.

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